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Life Insurance

VA Makes Death Benefit Language More Clear

According to a report by Leslie Scism for The Wall Street Journal (“The VA Will Make Changes in Life-Insurance Accounts“), the Department of Veterans Affairs is planning to rework its materials on claims to make sure that beneficiaries understand they can get a one-time check in the mail.

This is a controversy I’ve talked about before (August 30, Military Death Benefits: When Principle Should Outweigh Profit).

The accounts that have caused all the public debate — the Alliance Accounts — will continue to be used by Prudential. Essentially beneficiaries receive checkbooks and when they want money they write a check. The problem is that the accounts earn little interest while the bulk of the benefit remains in the company’s main accounts earning money — for the company — at a much higher interest rate.

What may be more significant, however, than correcting the impression that the Alliance Accounts are the only pay out option available, is the fact that families will now be apprised — in clear language — of the fact that those accounts are not protected by the Federal Deposit Insurance Corporation, but rather by state insurance guaranty funds only.

Prudential has, from early in the controversy, asserted that it is better for the money to be safe and earning interest at a time when grieving families are likely not making the best financial decisions. This may well be true, but insurance companies are not financial institutions nor should they be in the business of investment.

The important thing to remember with any large insurance settlement is, that if you do not immediately need the money to make a repair or replacement or to meet financial obligations, the money should be put in some vehicle where it’s working for you. My rub has always been the discrepancy in interest levels with this Alliance Account set up.

It can be argued that the difference is only a few thousand dollars one way or another, but beyond giving the clear appearance of profiting from the death of an American serviceman, the insurance company has already made their money on the policy through premiums. The death benefit does not belong to the company and it should not be a profit vehicle for the, no matter how small the amount.

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Life Insurance

Military Death Benefits: When Principle Should Outweigh Profit

Sometimes it’s not the money, it’s the principle, which is exactly what a group of military families are trying to say to Prudential Insurance in an amended lawsuit filed today to include more plaintiffs and an outright allegation of fraud in the handling of the death benefits of U.S. servicemen.

The company claims to follow an industry standard practice of putting death benefits in so-called Alliance Accounts on which beneficiaries may draw as desired. In reality, the monies stay in the company’s general accounts earning 5 to 6 percent interest and are only transferred into the Alliance Accounts as needed. Those accounts earn 0.5 to 1.5 percent.

If you do the math, it actually just comes down to a few thousand dollars difference, but that’s not the point. This “industry standard” practice amounts to earning money on the deaths of American servicemen. About half a billion dollars worth so far, according to the plaintiff in the suit.

One mother quoted in a story in the New York Times by Dan Frosch described the behavior as a “dishonor [to] my son, who died serving his country.” While Prudential did not comment on the story or the lawsuit, they have, over the past month, vigorously defended the manner in which they have treated military families, insisting they have provided a safe and reliable repository for death benefit funds at a time when families are not thinking clearly about finances.

Prudential has administered life insurance policies for soldiers since the 1965 creation of Service Members’ Group Life Insurance and also works with a program for veterans. The law requires the company to either offer a lump sum or 36 monthly installments when paying benefits.

It is most likely entirely true that Prudential has obeyed the letter of the law, but there is a larger spirit involved in this issue that corporate executives seem to be missing. It’s a matter of respect.

Nobody will argue the point that insurers are in the business to make a profit, but profit should stop where compassion and sensitivity begin. Insurance companies always seem puzzled when they do not have a good relationship with the public. Perhaps they should turn their razor sharp accounting practices on their own behavior and see how the math works out when viewed from the other side of the equation.

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Life Insurance

Make Sure Life Insurance Benefits Actually Reach Beneficiaries

An investigation by Bloomberg’s Market Magazine (“Fallen Soldiers’ Families Denied Cash as Insurers Profit, 28July10″) has cast new light on an old life insurance industry practice.

Basically, when a claim is filed, the beneficiaries receive something that looks like a checkbook. It’s actually used to request a payout from the insurance company, however, not as an actual negotiable check. The remainder of the money is held “in the account for safekeeping for as long as you like.”

Okay, so, some problems with this practice:

– The money is not held in a secure account guaranteed by the FDIC.
– The money is held in the company’s corporate account where it earns an income for the insurer.
– Interest paid to the actual beneficiaries on that money is often 10 times less than what the insurer is earning.

So, how much potential money are we talking about here? Well, currently there are more than 300 million life insurance policies active in the United States and the industry has $4.6 trillion in assets according to the American Council of Life Insurers.

Life insurance companies insist they’ve had nothing but positive feedback — from grieving families — many the parents of young soldiers killed in battle — who don’t realize until months or years have gone by exactly what is happening. A profit is being made on their loved one’s death benefits.

Most of these same people are not aware that under a 2008 law, recipients of veterans’ death benefits have a year to put the money in a Roth IRA, which will allow them to earn tax-free investment gains for the rest of their lives. The insurance company sure as heck isn’t going to tell them.

(For a detailed account of this situation, please read the Bloomberg article.)

Here’s the bottom line. If you are the recipient of any kind of life insurance benefit, it is critical to consult a lawyer and a financial advisor. That policy made money for the insurer while your loved one was paying premiums. It should not continue to profit the company after his or her death. Make sure that the benefits are handled to the benefit of the beneficiary, not for the further gain of the insurance company.

(Click here to learn more about The Importance of Having Life Insurance for Your Family.)

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Life Insurance

Life Insurance Fraud, Exception not the Rule

Murder to collect the life insurance money is not just the stuff of mystery novels and formulaic TV dramas with the words “law” and “order” in the title. Authorities in Merced, California have arrested a total of four suspects in the fatal shooting of a 39-year old man on suspicion that he was killed for his coverage benefits

The suspects include the man’s wife, stepson, 25-year-old daughter, and the daughter’s 16-year-old boyfriend. The slain policy holder, Alberto Rodriquez Macias, was covered by life insurance totaling $1 million. In March, Macias was found with two gunshot wounds to the head. Both the wife and stepson have pleaded not guilty. The juveniles are being held in the Merced County Juvenile Hall.

Police have said they believe the wife, Laura Hernandez, orchestrated the plot and the 16-year-old boyfriend, who will be tried as an adult, pulled the trigger. Hernandez, however, also tested positive for gunshot residue indicating she either fired a weapon or was in the vicinity of a weapon when it was fired.

In addition to physical evidence and an inconsistent timeline, incriminating text messages were exchanged amongst the defendants including one from Hernandez to the boyfriend that read, “Do it whenever you want because I want to be with my kids now please Edgar.” Hernandez insists the message referred to the family dog.

Sadly, all types of insurance fraud go up in tough economic times. Most of the time it’s automotive or homeowner’s fraud, but cases like this do happen. Remember, however, that these cases are the exception not the rule and should not discourage you from taking out life insurance that will provide vital protection to your family in the event of your death.

While the Macias case is surely a cautionary tale, it’s not one so much against insurance as against family dysfunction gone awry!

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Life Insurance

Medical Exam Tips

Congratulations! You’ve made the leap, and chosen to apply for a life insurance policy. However, you’ve been told that the insurance company requires a medical exam, which they pay for. For most people, this is not a big deal – the exam generally consists of urine and blood samples, blood pressure readings, measurements of your height and weight, and a questionnaire.

The answers you provide will determine your health class, which, in turn will determine your insurance rates, so it’s important to get the best results possible. How do you do that? Here are a few tips:

  • If possible, fast for eight hours before your exam for more accurate blood test results. Schedule appointments in the early morning to help with this.
  • If you cannot fast, avoid caffeine, and eat lightly. Decaffeinated coffee is fine, along with a light breakfast or lunch.
  • Avoid salt for three-four days before your exam, especially if you sometimes have blood pressure issues.
  • Abstain from drinking alcohol for 24 hours prior to your exam, since alcohol tends to elevate blood pressure for 12 to 24 hours.
  • Get a good night’s sleep before the exam.
  • If you’re a smoker, don’t smoke within half an hour of the exam, as smoking also tends to constrict artery walls and elevate blood pressure.
  • If you’re suffering from an acute illness, such as the flu – or even an ear infection – consider rescheduling the exam, as some illnesses can affect the blood and urine tests.
  • If you’re female, and menstruating at the time of the exam, be sure to tell the exam technician, as this can affect your urine sample. They’ll be able to put a note on the lab slip.

Most importantly, be certain that you are completely accurate on the questionnaire. If you’re caught in a lie, your entire policy could be voided.

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Life Insurance Medicare

Long Term Care Insurance – Women May Need it More than Men

Want to hear something alarming? There are currently more than 36 million Americans who are 65 or older, a number likely to surge to 87 million in the next four decades, and fewer than a third of them – about 8 million – Only about have a long-term care plan as part of their life insurance package. That’s bad for all of them, but worse for the vast number of older women destined to outlive their husbands, especially if they have no children or other relatives unable to provide care.

Recent health care reform legislation does offer some hope. Beginning in January, corporate insurance plans will begin offering CLASS (Community Living Assistance Services and Support), a government-run, voluntary, long-term care insurance program. Participants of any age will pay a month premium, and, after a five-year vesting period can receive $50/day – or more – for in-home care.

The passage of CLASS is a big step, but it still doesn’t negate the need for long-term care insurance. As the American Association for Long-Term Care Insurance(AALTCI) shares, private home health assistance averages $20/hour, which means a senior citizen needing four hours of assistance three days a week would be paying $12,480/year.

The AALTCI has recently completed a study on seniors and long-term care. Among other things, they discovered:

  • 80% of Americans who need private home health care are at least 75 years old.
  • Roughly 10 million American seniors need daily help with basic tasks like eating, dressing, and bathing. Within ten years, that number is expected to reach 12 million – and it will continue to climb.
  • About 90% of seniors would prefer to live out their years in their own homes, rather than being sent to a nursing home, or similar facility.
  • Medicare doesn’t pay for services like basic care that isn’t linked to a serious medical condition.
  • 60-75 percent of the time, women provide family care, or informal care – 50 percent more time than men do.
  • Women outlive men by an average of five years.

What does all this mean? Put simply: consider a long-term care plan now – especially if you’re a woman.

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Health Insurance Life Insurance

No Rate-Hike for Anthem-BlueCross

Los Angeles, California-based health insurer Anthem Blue Cross announced this week that policyholders will not see an insurance rate hike on May 1st, after all.

Kristin Binns, speaking for Anthem’s parent company, Wellpoint, Inc, told the Los Angeles Times that clients will “…receive adequate notification of any rate change. Until they receive information indicating otherwise, rates remain unchanged.”

Last January, many individual policyholders who were clients of Anthem were told that they would be seeing a rate increase as great as 39% on March 1st. After a significant public protest, a two month delay was announced.

Under California state law, insurance companies must give at least thirty days’ notice before altering rates.

Anthem has not yet said how long this new delay will be.

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40% of South Carolina Insurance Agents Could Lose Licenses by May First

Insurance agents in South Carolina must complete their first-ever license renewal process by May 1st, or risk losing their licenses, a report in the Insurance Journal says.

Under new state regulations there are now compliance requirements which insurance agents must meet. These requirements include the completion of 24 hours of continuing education, the completion of an online “producer” license renewal process, and the payment of two fees – one a $15 record-keeping fee which goes to Prometric, Inc. , and the other a $25 license renewal fee.

Scott Richardson, state Insurance Director, said that all insurance agents licensed in South Carolina were sent notices explaining the compliance requirements, but that many of them have not yet acted on the new regulations.

Richardson said to the press, “Our records indicate that more than 40 percent of both resident and nonresident agents have yet to renew their license, complied with CE requirements or both. Their licenses will lapse if they have not complied by the May 1, 2010 deadline. They will be unlicensed and unable to transact the business of insurance.”

In addition to sending notices, there have been three-hour seminars outlining the changes to state licensing procedures. The seminars also explained changes to brokers’ license requirements, and new legislation regarding the sharing of commission and company appointment procedures. So far, the cities of Greenville, Rock Hill, Columbia, Hilton Head, Charleston, Myrtle Beach, and Florence have hosted these seminars.

The seminars were sponsored by several organizations, including the Department of Insurance, the Independent Agents and Brokers of South Carolina, the National Association of Insurance and Financial Advisors (South Carolina chapter), the Professional Insurance Agents of South Carolina, the South Carolina Association of Auto Insurance Agents, and the South Carolina Association of Health Underwriters.

There will be a final session on Friday, April 16th, in Columbia, SC.

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Life Insurance

When to Re-evaluate Life Insurance

Most of us never shop for life insurance, relying solely on the coverage we get through our corporate benefit packages, or if we do purchase a life insurance policy, we make payments but never think to upgrade or alter our coverage.

The folks at LIFE, the Life and Health Insurance Foundation for Education want all of us to rethink that habit. According to them, it’s not just the obvious life changes – like getting married or divorced, or having a baby – that should prompt a closer look at our policies. So what are all the changes that should trigger insurance examination?

Here’s the list:

  • Getting married – because now there are two lives to insure.
  • Having a child – this involves a change in beneficiary, as well as covering the new addition.
  • Buying a home – it increases your net worth, even if it doesn’t always feel like it. And you need to make sure your spouse can meet the mortgage payments without your income
  • Adding debt – whether it’s a loan for home improvements or a new car, you’ll want to make sure your life insurance is a resource if you get in over your head.
  • Changing jobs – your coverage doesn’t necessarily follow you.
  • Changes within your business – if you have to hire people with special skill sets, that could increase the bottom line of the benefits you offer.
  • Supporting aging parents – you can’t claim them as dependents, but you can incorporate their financial needs into your life insurance plan.
  • Changes to your marital status – if you divorce or become widowed, you need to consider the future for yourself, and any children.
  • Planning for college – some life insurance plans are designed to be cashed out to help your child pay for school.
  • Planning for retirement – after paying into it for decades, will your life insurance give you any kind of income? Or at least ensure that those you leave behind are not incurring your debt?
  • As you can see, there are many life changes which can affect life insurance – don’t wait to examine your policy, and alter it to suit current or future needs.